* C$ at C$1.0449 vs US$, or 95.70 U.S. cents * Canadian GDP grows by 0.3 pct in August * Canadian bond prices higher across the curve By Leah Schnurr TORONTO, Oct 31 The Canadian dollar strengthened against the U.S. currency on Thursday, pulling back from a seven-week low, as data showed the domestic economy grew at a slightly better-than-expected pace in August. The oil and gas industry helped the Canadian economy grow by 0.3 percent in August, topping economists' expectations for a 0.2 percent rate. Still, the report was unlikely to change the outlook that Canada's economy is progressing only modestly, or sway the Bank of Canada's monetary policy, said Mazen Issa, macro strategist at TD Securities in Toronto. "Overall, not much of a major implication in terms of the underlying trend in GDP at the moment," said Issa. The Canadian dollar hit a session high of C$1.0435 shortly after the data was released, but the knee-jerk reaction "seems to be fleeting at the moment," Issa said. The Canadian dollar was at C$1.0449 versus the greenback, or 95.70 U.S. cents, stronger than Wednesday's close of C$1.0484, or 95.38 U.S. cents. Investors were likely to stay focused on monetary policy on both sides of the border. The Canadian dollar tumbled on Wednesday to its lowest level since early September after the U.S. Federal Reserve stayed the course on its economic stimulus efforts, but the central bank's tone was not as dovish as some had expected. The U.S. central bank surprised markets with its previous policy decision in September to maintain its massive bond purchases, despite earlier hints by several Fed officials that it might begin to scale them back. Investors have since been trying to gauge the Fed's timetable for withdrawing its stimulus. "At this juncture, the underlying risk really remains around the FOMC and the potential tapering process," said Issa. A shift in policy from the Bank of Canada last week has also knocked the Canadian currency lower in recent sessions after the central bank dropped its rate-hike bias, pushing analysts' expectations for an eventual increase in interest rates further out into the future. Canadian government bond prices were higher across the maturity curve. The two-year bond rose 2 Canadian cents to yield 1.092 percent, and the benchmark 10-year bond added 25 Canadian cents to yield 2.393 percent.